Macro Analysis /
Mexico

Mexico: Banxico – Quite close to the end of the easing cycle

  • Banxico decided in a split decision to cut the reference rate by 50bps to 4.50%, in line with our expectations

  • In our view, the tone was less dovish. We reiterate our call of one more 50bps cut in the September 24th meeting

  • However, it is our take that after today’s decision, the risk is leaning towards more modest cuts

Gabriel Casillas Olvera
Gabriel Casillas Olvera

Managing DirectorInvestor Relations Officer and Chief Economist

Follow
Contributors
Francisco Jose Flores Serrano
Juan Carlos Alderete Macal
Alejandro Padilla Santana
Banorte
14 August 2020
Published byBanorte

Banxico – Quite close to the end of the easing cycle 

  • Banxico decided on 13 August, in a split decision, to cut the reference rate by 50bps to 4.50%, in line with our expectations and consensus 

  • Specifically, one member favored to reduce the reference rate by 25bps, to 4.75%. We believe this vote was casted by Deputy Governor Javier Guzman, which we identify as relatively hawkish 

  • In our view, the tone was less dovish, particularly on inflation. In this respect, they added a statement that “…the available room to maneuver will depend on the evolution of the factors that have an incidence on the outlook for inflation and its expectations…” 

  • Our linguistic analysis showed a higher importance of “inflation” and other words associated to it, such as “effects”, “core”, and “pandemic”. In contrast, “economic activity” had a lower relative weight 

  • We reiterate our call of one additional rate cut of 50bps, to 4.00%, in the meeting to be held on September 24th. However, it is our take that after today’s decision, the risk is leaning towards more modest cuts

Banxico cuts the reference rate by 50bps to 4.50%. This was in line with our view and consensus expectations. Nevertheless, the decision was split (4-1), with one member favoring to cut only 25bps, to 4.75%. We believe this vote was by Deputy Governor Javier Guzman, which we identify as relatively hawkish. On the other hand, we perceived the statement’s tone as less dovish, with mixed changes to the statement but more cautious on inflation. We reiterate our call of one additional rate cut of 50bps, to 4.00%, in the meeting to be held on September 24th. However, it is our take that after today’s decision, the risk is leaning towards more modest cuts.

Modest tweaks on growth, still dovish. The central bank stated that the global economy started to improve in May and June, supported by policy measures. Despite of the latter, the environment remains highly uncertain. Domestically, the Board recognized the historical decline of 2Q20 GDP along signals of a recovery in June. Nevertheless, they stated that “…significant risks to the downside persist…”, reaffirming that they see greater economic slack as a result.